Retail News Breaks Archives
Data breach hammers Target results
February 26th, 2014
MINNEAPOLIS – As expected, both sales and earnings fell at Target after a data breach that resulted in the theft of millions of customers’ credit and debit card information drove off customers at the height of the holidays.
The bottom line for the fourth quarter fell 46% to $520 million, or 81 cents per diluted share, a penny ahead of the average estimate among analysts. Sales declined 3.8% to $21.52 billion, as comparable-store sales decreased 2.5%, in line with the company’s guidance.
Commenting on the effect of the data breach, Sandy Skrovan, U.S. research director for Planet Retail, said, "The immediate consequence was a loss of shopper trust at a time when Target had already been struggling to lure shoppers through the door. Heading into quarter four, Target was coming off of four straight quarters of traffic declines. So one of the key metrics everyone should be watching is traffic. We expect a continued slide."
For the full 2013 fiscal year, net earnings plummeted 34.3% to $1.97 billion as sales edged up 0.9% to $72.6 billion.
"During the first half of the fourth quarter, our guest-focused holiday merchandising and marketing plans drove better-than-expected sales," chairman, president and chief executive officer Gregg Steinhafel said in a statement. "However, results softened meaningfully following our December announcement of a data breach. As we plan for the new fiscal year we will continue to work tirelessly to win back the confidence of our guests, and we are encouraged that sales trends have improved in recent weeks."
The bottom line reflects $61 million in expenses related to the breach, offset by $44 million in insurance. It also included a $329 million loss before interest and taxes generated by Target’s Canadian operation, which thus far has performed well below expectations.
Management also declared that it is not currently able to estimate future expenses related to the data breach, but warned that such expenses might include payments associated with potential claims by payment card networks for alleged counterfeit fraud losses and non-ordinary operating expenses such as card reissuance costs; Target REDcard fraud and card reissuance expense; payments related to civil litigation, government investigations and enforcement proceedings; legal, investigative and consulting fees; and incremental expenses and investments for remediation activities. Those costs may have a "material adverse effect" on Target’s operating results not only for the first quarter and 2014 fiscal year but for future periods as well, the company said.